The real stories from inside the F1 paddock

Some numbers from the F1 world

The Formula One Administration Ltd accounts for 2010, which have just been published, are interesting for a number of reasons, although as always with such statements it is dangerous to make guesses about what has been happening as accountants reveal only what they want to reveal and one is never sure what they are up to. What is revealed, however, is that all the commercial rights to the F1 World Championship have been transferred to a new company called Formula One World Championship Ltd (FOWC). This will, in theory at least, now oversee all commercial activities for the next 100 years. All the F1 contracts will be transferred to this entity. FOWC is a sister company of Formula One Administration, and is wholly owned by SLEC Holdings, a Jersey company.

This is turn is owned by (take a deep breath) Alpha Prema UK Ltd, which is owned by Alpha D2 Ltd, which is owned by Delta 3 (UK) Ltd, which is owned by Delta 2 (Lux) Sarl of Luxembourg, which is owned by Alpha Topco Ltd (Jersey), which is owned by Delta Topco Ltd (Jersey).

This is owned by a number of parties, including 63.3 percent which belongs to various CVC funds; LBI Group Inc (a Lehman Brothers company), which owns 15.3 percent; the Ecclestone Family’s Bambino Trust, which owns 8.5 percent; Bernie Ecclestone, who personally owns 5.3 percent; JP Morgan Whitefriars Inc, which owns 3 percent; Churchill Capital Ltd which owns 0.7 percent and then an assortment of employees and directors, who between them own 3.6 percent of the business.

There were some curious transactions included in the last year, not least the sale of various companies to FOA director Sacha Woodward Hill for reasons that are not entirely obvious. She acquired Petara Ltd, the holding company of Formula One Management for £1,000 in September. Prior to that sale Petara had paid out $28.7 million as a dividend and thus had no business and no assets. It was later dissolved. It is not clear why Woodward Hill would have bought such a company. However, it is worth noting that Petara is the company in which Munich investigators have been showing a certain amount of interest in recent months.

The other point of interest was that FOA sold all of its assets to a subsidiary Formula One Management Ltd for $102 million. It sold a company which runs Istanbul Park to FOWC for $1, which meant writing off $11 million. The company paid out a dividend of $1.5 billion. and collected licence fees from Allsport Management and its various hodlings company totalling around $70 million. Turnover went from $1063 to $1082 from 1063 (up two percent) and team payments increased from $544 to $658, because of the terms of the 2009 Concorde Agreement, which included $30 million to the three new teams. As a result FOA’s profits went from $420 million to $341 million.

It is one of those things that is interesting to find out who owns what, and what those connections are, but I can’t help but think that sometimes a little ignorance is bliss. It comes across like lawmaking and sausages, sometimes its better not to know how things are made, or who owns what.

Well you certainly seem to have a handle on this Joe, maybe you will get an offer from the German fraud squad soon as a special investigator.

Those that are directors of companies that shell out vast dividends and then are bought for $1 only to be disbanded whilst under investigation are obviously trying to hide something. Why else does it happen? Tax evasion, oops sorry, avoidance?
Or can there be other reasons like the avoidance of culpability?

So the new company that owns the F1 rights has no current agreement with either the teams or the FIA, is that correct? The Concorde agreement is now defunct! I thought the FIA had a say on who the rights could be sold to, so did they approve this and if so why? Just to add another link in the very long chain stretching between the rights, the teams, the money, the FIA and Bernie’s pocket?

Of course the financial web is complex, it has to be, the numbers are huge and revenue is generated across five continents. It is run as a commercial operation to fund the teams who invent the technology and pay the drivers that fuel this sport.

Joe, if a board of Governors where to be recruited to act as the future guardians of Formula One, who would you choose?

/The Economist/ once referred to the structure of ownership of F1’s commercial rights as a “complex tax-avoidance scheme.” And that was back when there were only six players (FOM, Petara, FOA, FOH, SLEC Holdings, and Bambino Holdings). Now we’re, by my count, up to seven….

It’s hard not to be suspicious of an entity controlled through a string of holding companies many in offshore tax havens. If you want to minimise tax then HQ your company in a tax haven which you can legally do. If you create a seamingly endless web of companies that don’t do anything then you’re probably trying to hide something.

Re. Petara – winding it up won’t save them. If the investigators are looking into it then it won’t matter if the company still exists or not. Accounts must be kept for a number of years for auditing and directors are still liable for up to two years after ceasing to be a director.

I’ve nothing to add to this one, but if you look back a month or two, here, there was at least one very astute infrequent commenter, who made it amply clear that actual ownership of any deals in this world can be exponentially more complex than tracing companies. The trick is for no-one to own anything, in my non legalese mind.

Joe’s got the inverted paper cups lined up in a row for you, though! :-)

What i learned from this, nice analysis Joe, was Petara was a Place Of Control vehicle, not an operating company. I’ve probably got my accounting language all wrong, quite a long time since i subscribed to the vast databases of tax treaty law . . heck, they were printed then . . .

and harking back to that chap who wrote here just the couple of times, everything is structured like a asset backed security these days. I really mean everything, even really quite normal things regular people deal with. Hey, if you want to raise any money, these were always polite terms for haggling the vig with your broker . .

– j

p.s. for Silverstone79,

If you look up “Professor Farnsworth, I don’t want to live on this planet anymore”, you might come across the Futurama episode which gets me laughing at the futility of our collective selves. Trying to cheer you up fella! You know it’s a lot of bunk, and i don’t think Joe has public liability cover for his free information service. Always look on the . . .:-)

the problem with railing against profits, is the only other system ever devised, during the rebuilding of Blighty after the war, is the “Cost Plus” system. Send in your bill. Add 5%. That was so abused (bear in mind my dad was lending against all of this in, a generational and in my mind terminal capital shift from the industrial North) that pop got a radio play on the subject d-noted. I understood it was recorded, and nixed at review. Think that was ’55.

If you look broadly at capital problems, they exist with distribution. One very very recent one, since 1977, for that is i think the date of the seminal Modigliani and Miller paper, is the idea of not distributing dividends. So then money became a closed system, and you and me, we get it all, err, sometime in the future. Maybe. Think it’s been traded.

Joe, i’m steering hard away from the pulpit. I just wanted to make the point that on one side, outrageous risks which otherwise end in penury, do carry long term gains, often commensurate with the long term human risks, and on the other we all know we need a review of the history of thought as to Capital, and where it comes from.

p.s. For the Americans out there, the thing i am noting, about capital, is sometimes in papers i’ve reviewed, called the Rust Belt Shift, for your parts. My Pop was a rust belt Thrift manager given the “uninteresting South” to himself. I think, but would have to read very widely to put meat on the bone of the idea, that the American capital shift didn’t happen ’till later, and was triggered by Bill Simon at Solly, sold by Lou Ranieri. And those were the good guys in the game.

Noting this, as i do think it has relevancy to F1. In the abstract fashion that dealers always find ways to move the money, and it often leaves real people in the dust.